'Overvaluation' in Edmonton housing market already correcting: CMHC

Edmonton’s housing market showed “moderate evidence of overvaluation” in the third quarter of 2015, Canada Mortgage and Housing Corp. said Wednesday in a housing market assessment.

But prices are moving down, helping to push the market back into balance, Christina Butchart, the CMHC’s principal, market analysis, Edmonton, said Wednesday.

“In the Edmonton market right now, if you look at resale price data on a seasonally adjusted basis, we have seen prices move down in five of the last six months,” Butchart said in an interview.

“The fact that prices are softening because we’ve had lower sales and higher listings is where we think the market really should be right now — that direction.”

In an annual forecast this month, the Realtors Association of Edmonton predicted total sales will fall 2.3 per cent year-over-year to fewer than 17,000 in 2016. Twelve-month average selling prices for single-family detached homes and condos will each fall 2.7 per cent in 2016, the association said. In 2015, the 12-month average price for a single-family home was $437,569, while the 12-month average condo price was $252,954.

Overvaluation reflects house price levels that are not fully supported by fundamental drivers such as income, mortgage rates and population growth.

The growth of house prices in Edmonton has been stronger than economic and demographic fundamentals, the report said. It also says overbuilding could be a concern in the capital area.

“We are watching that indicator rather closely,” Butchart said.

“When we look at overbuilding, we look at the number of units that are complete and unoccupied, as well as the vacancy rate. And last year in Edmonton, we had quite a high level of multi-family construction, so we could start to see those inventory levels trend up, which may lead to an overbuilding concern in the months ahead.”

The CMHC’s assessment looks at four factors to assess evidence of problematic housing market conditions: overvaluation, overbuilding, overheating of demand and acceleration in the growth rate of house prices.

Of 15 census metropolitan areas across Canada, overvaluation was found in eight centres and overbuilding in seven. “Strong evidence of problematic conditions” was found in Toronto, Calgary, Saskatoon and Regina.

Calgary, hit harder than Edmonton by the oil downturn, saw overvaluation move from moderate to strong. Overbuilding is a growing concern in Calgary because of an increase in the rental vacancy rate, the report found.

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